Please see below, an article from Tatton Investment Management, analysing the key factors currently affecting global investment markets. Received this morning – 20/10/2025
Bounce and brace
Global risk assets finally ended with a bounce last week, with portfolios still closer to where they were at the beginning of October than the highs touched before Trump’s 100% tariff threat on China. The pull-back has been healthy, considering how frothy some areas looked.
Trump’s tariff threat came after China’s export restrictions on rare earth minerals. Trump and President Xi will meet face-to-face at the APEC summit starting on October 31st, and we suspect they are getting their barbs in ahead of more constructive negotiations. China goes into the summit in mixed shape, after a pickup in its imports and consumer demand (benefitting European luxury goods). But exports are flat when adjusted for seasonal patterns, while GDP has just been reported as dropping to 4.8% in Q3 -the weakest in a year – and so Beijing still has much to lose. Hopefully, that incentive keeps things stable and civil.
Government bond yields moved down, particularly for the UK. We’ve long argued Britain isn’t as bad as it looks; it’s just odd others are agreeing right before tax rises come in. Corporate credit looks less healthy, amid a spat between JPMorgan’s Jamie Dimon and private credit providers over who has the worse lending standards. Credit in the spotlight means problem areas will be revealed (as with some regional US banks this week) and lending could tighten. It will be difficult for credit spreads and distressed debt to do well in this environment.
Thankfully, the Federal Reserve looks nailed on to cut rates again this week in response, which will help smaller companies (some of the week’s better performers) in particular. The other saving grace was strong quarterly bank earnings – though not enough to support bank share prices. You can’t see credit stress in the reports and earnings everywhere have been resilient.
Without those earnings, markets could have experienced more lasting downdraft. Risk appetite is waning (AI and crypto concerns are covered below) and liquidity is tightening. Lingering anxieties could mean more volatility ahead. But underlying earnings mean investors would do well to stay calm through the turbulence.
AI bubble trouble
According to Bank of America, 54% of fund managers think the AI sector is in bubble territory. AI optimism (and related cloud technologies) has been one of the main market drivers for years, and big US tech companies have poured billions into development. But most businesses struggle to say how generative AI has improved operations. That disconnect fuels bubble talk, especially after a six-month-long global stock rally that many worry is overheating. Just as the dotcom bubble burst in 2000, there are an alarming number of tech companies without any profits. Bubble trouble went into overdrive last month after an OpenAI-Nvidia deal which looks like circular ‘vendor financing’.
We should remember, though, that the ‘Magnificent Seven’ tech stocks that have benefitted the most from the AI theme remain extremely profitable. Their price-to-earnings valuations are much lower than the dotcom-era leaders, and some (Apple and Amazon) aren’t that highly valued at all. You could argue that big tech is overpaying for AI development but many of those companies were accused of underinvestment in the past. Capex is still mostly coming from free cashflow too, rather than leverage.
Bubble talk should therefore be nuanced. It is undeniable that some US tech stocks have stretched valuations, but they’re more likely small and midcap companies. There are worsening profit margins just below the Mag7 (like Oracle and CoreWeave) but those companies are betting on high future computing demand.
Interestingly, the most profitable AI companies benefit from scarcity, but that scarcity pushes up prices and hinders broad AI usage. That’s the opposite of dotcom: the internet was free, which is why companies struggled to make money. AI’s future profits require broad adoption – but its current profits hinder adoption. The biggest names are unlikely to bubble over, but there are concerns below the surface.
Gold benefits from debasement
US instability has pushed people out of the dollar this year, and into old favourites (gold) and new disruptors (cryptocurrencies). Investors call that “the great debasement trade”, but it’s becoming uneven.
Cryptocurrencies sold off sharply after Trump’s 100% China tariff threat a week ago. Bitcoin lost 16% in the aftermath, Dogecoin sank 50% and certain so-called ‘stablecoins’ (which aren’t legally stablecoins, as they’re not backed by risk-free instruments) lost their 1-for-1 dollar pegs. $19bn of leveraged positions were liquidated across futures markets – including a suspiciously large sell order (in profit), that was opened just minutes before Trump’s announcement. Volatility forced leveraged buyers to close crypto positions to cover their margin calls, and exchanges deployed $188mn from an insurance fund to cover market gaps.
Gold, on the other hand, kept soaring ahead. Its years-long rally has amped up recently, going from $3,200 an ounce at the start of August to over $4,200 now. People lump gold and cryptos together in the debasement narrative – but their drivers are different. Central bank purchases have created a momentum trade dynamic for physical gold, following Russia’s SWIFT exit and a desire (mainly from emerging markets) to de-dollarize. Gold prices rallied again despite a stronger dollar, which normally pulls down commodities through pricing effects.
The gold-crypto disparity tells us gold is seen as a currency diversification, while cryptos are risk assets. Indeed, a crypto rally is often taken as a sign of risk appetite. That might sound strange, considering that a gold rally is usually interpreted as a risk-off indicator. The debasement trade reconciles that difference, but the recent coming apart cements gold’s status as the main dollar alternative.
That’s also why we don’t think gold is a viable long-term investment (which long-term returns back up). There’s nothing to stop it rallying further, but it’s a currency diversification play more than a source of growth.
Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.
Marcus Blenkinsop
20th October 2025